After more than thirteen years of large cap dominance, anchored most recently by the AI driven rally in the “Magnificent Seven,” small and midcap U.S. equities have led their large cap peers for four consecutive quarters.
In this environment, investors should balance exposure between the structural tailwinds of AI and the cyclical vulnerabilities of an economy still walking a fine line between expansion and slowdown.
The opening quarter of 2025 was a roller coaster ride for investors, beginning with optimism but ending with considerable turmoil.
U.S. stock markets experienced positive performance in 2024, and that trend is expected to continue in 2025. However, 2025 also has the potential to experience increased market volatility and shifting trends due to policy changes from the incoming administration combined with uncertainty about inflation and global economic conditions.
Large Cap companies have dominated their smaller brethren since the end of the Great Financial Crisis in 2008. After the economy started recovering from the crisis in 2009, market leadership was initially powered by small names but as the recovery stabilized, larger names started to gather strength and have been on a tear since. With more than 13 years of large cap leadership on the books, it may be time for a change.
